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Private hospitals are entitled to exemption from customs duty on imported equipment only if they provide free treatment to the poor held a Bench of the Supreme Court comprising Justices Harjit Singh Bedi and Tarun Chatterjee on May 16, 2008 in the case of M/s. Andromeda Foundation India P.Ltd. v. D.G.H.S. (Director General Health Services) & Ors..

On March 1, 1988, a Notification was issued by the Government of India whereby medical equipment imported for specified purposes was exempted from the payment of customs duty.

In this case, taking advantage of the Notification, a private hospital imported three machines. According to the exemption Notification the imported equipment was also to be used to provide free services to the poor. Since this did not appear to have been done, the Customs Duty Exemption Certificate was withdrawn and an attempt was made to recover customs duty from the hospital.

The matter ultimately reached the Supreme Court which found that Section 124 of the Customs Act which deals with the confiscation of goods had absolutely no applicability to the case.

The Court said that having imported medical equipment on concessional terms, it was incumbent on the hospital to have scrupulously observed the conditions of the import and to have followed the guidelines designed to ensure that the equipment was being properly utilized.

In Mediwell Hospital & Health Care’s case it was held that:

“The competent authority, therefore, should continue to be vigilant and check whether the undertakings given by the applicants are being being duly complied with after getting the benefit of the exemption notification and importing the equipment without payment of customs duty and if on such enquiry the authorities are satisfied that the continuing obligations are not being carried out then it would be fully open to the authority to ask the persons who have availed of the benefit of exemption to pay the duty payable in respect of the equipments which have been imported without payment of customs duty. “

Although this judgment has been overruled in a subsequent matter on a different point, the Bench said that the observations quoted above still hold the field.

The case of Jagdish Cancer & Research Centre was also referred to. In that case, the Supreme Court considered the implications of the non-compliance with the conditions of import and observed:

“It would, not at all, be necessary to prescribe any period to achieve the given percentage of patients treated free. It should generally be all through the period. It being at least 40 per cent, there is hardly any occasion to say that in case there is more than 40 per cent in a given period, that may make good the deficiency in the previous or the following year.”

Saying that it was also conscious of the large scale misuse of the medical equipment imported under the exemption notification, the Supreme Court said that it is essential that the authorities regulatory monitor the use of the equipment.

The Court did not rule in favour of the hospital in this case.

(This article is an edited extract of the judgment.)